NVIDIA Corporation (NASDAQ:NVDA) shares are up more than 28.02% this year and recently increased 0.69% or $1.7 to settle at $247.71. General Motors Company (NYSE:GM), on the other hand, is down -6.56% year to date as of 05/17/2018. It currently trades at $38.30 and has returned 3.07% during the past week.

NVIDIA Corporation (NASDAQ:NVDA) and General Motors Company (NYSE:GM) are the two most active stocks in the Semiconductor – Specialized industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.

Growth

Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect NVDA to grow earnings at a 14.06% annual rate over the next 5 years. Comparatively, GM is expected to grow at a 14.55% annual rate. All else equal, GM’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return., compared to an EBITDA margin of 7.82% for General Motors Company (GM). NVDA’s ROI is 30.90% while GM has a ROI of 4.50%. The interpretation is that NVDA’s business generates a higher return on investment than GM’s.

Cash Flow

The value of a stock is simply the present value of its future free cash flows. On a percent-of-sales basis, NVDA’s free cash flow was 0% while GM converted -4.67% of its revenues into cash flow. This means that, for a given level of sales, NVDA is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. NVDA has a current ratio of 8.00 compared to 0.90 for GM. This means that NVDA can more easily cover its most immediate liabilities over the next twelve months. NVDA’s debt-to-equity ratio is 0.27 versus a D/E of 2.88 for GM. GM is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

NVDA trades at a forward P/E of 32.07, a P/B of 20.06, and a P/S of 15.56, compared to a forward P/E of 5.92, a P/B of 1.57, and a P/S of 0.37 for GM. NVDA is the expensive of the two stocks on an earnings, book value and sales basis. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.

Analyst Price Targets and Opinions

Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. NVDA is currently priced at a -1.08% to its one-year price target of 250.42. Comparatively, GM is -19.49% relative to its price target of 47.57. This suggests that GM is the better investment over the next year.

Risk and Volatility

Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. NVDA has a beta of 1.53 and GM’s beta is 1.61. NVDA’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment

Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment. NVDA has a short ratio of 0.97 compared to a short interest of 2.46 for GM. This implies that the market is currently less bearish on the outlook for NVDA.

Summary

NVIDIA Corporation (NASDAQ:NVDA) beats General Motors Company (NYSE:GM) on a total of 9 of the 14 factors compared between the two stocks. NVDA is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. Finally, NVDA has better sentiment signals based on short interest.

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